The leasing market has been dominated by low interest rates for over a decade and even though there have been various indications that rates were set to rise the rise has only been modest in comparison with expectations.
Lease rental factors (LRFs) express the montly lease rental as a percent of the current market value. The lease rental factor is dependent on interest rates and the relative strength of the market. Although the market is strong, the current low interest rates are keeping interest rates low. There is also strong competition among lessors even if there is an extensive backlog. The lease rental factors on new aircraft can therefore be as low as 0.6 percent. In years gone by a mid life aircraft may have viewed one percent as the norm but such LRFs reflect periods of higher interest rates.
The lease rentals are provided by The Aircraft Value Analysis Company Ltd (AVAC) www.aircraftvalues.net or www.aircraftvalues.com. Rates are quoted in thousands of US dollars per month and exclude maintenance reserves. They assume a medium credit, average return conditions and an average lease term. Lease rentals for actual transactions may differ. European specification (a factor which has lesser significance due to the spread of the low cost model where galley equipment is less important), weaker credits and short lease terms may warrant a higher rental. A long-term rental to a strong credit will justify a lower rate. AVAC can privide a matrix of adjustment factors to reflect differing lease terms on request.
|Narrowbody Lease Rates (Dry) US$ ‘000s pm – March 2019|
|A318-100||2003-12||60-130||The market for the A318 has long since moved away from the commercial sector and is more focused on the aircraft as a VIP transport in the Elite configuration. There are a large number of A318s in storage that were operated by Avianca Brasil. There Frontier aircraft have long since been scrapped which leaves relatively few in commercial service. GECAS leases a number to Avianca and Fuyo leases others to Air France and other lessees. The lease rentals are holding steady not least because they have declined so much in previous years.|
|A319-100||1996-981999-092010-19||60-9575-170150-280||There are only a few A319s remaining to be delivered and only a handful of A319neo orders have been placed. The market for used A319s is reasonably stable however and lease rentals are not considered to have moved much in the last year. However, the least rentals for the youngest aircraft will have difficulty reaching the upper end of the indicated range unless there are special requirements. There are over 150 A319 operators using 1,300 or more aircraft with American and easyJet being the largest users but unlike Southwest with the B737-700, these to operators do not dominate. The reasonable rates allow the smaller capacity aircraft to be filled with good yielding traffic on less mainstream routes. The value of the engines means that lessors have a good alternative if the aircraft cannot be leased.|
|A220-300||2016-19||220-280||The average of seven appraisers indicates a rental of more than $300,000 for a new -300 which seems a lot. However, operators seem to be pleased with the aircraft.|
|A320-200||1988-921993-971998-032004-102011-19||40-9060-9590-170135-240200-350||While securing a rental at the upper end of the indicated range – ie $350,000 – is likely to be difficult, if not impossible, the rates in the middle are stable. Strong competition remains and this means that lessors will be hard pressed to charge a premium for younger aircraft. of seven appraisers the average rental for a new A320ceo is seen as being around $330,000 with a high or $350,000 and a low of $295,000. A more likely rate is around $300,000 although SpaceFlex may allow a slightly higher rate. Most A320ceos in recent years have been delivered with Sharklets. The lease rentals can be higher depending on the return conditions. With an end of lease compensation arrangement equating to full life, this can mean that the lessor receives some $8 million at the end of a 10 year lease for half to full life. This equates to another $65,000 per month over the term of the lease. Consequently, this needs to be added to the seemingly low rental of $300,000 per month – ie this will total $365,000 per month. Even 20 years ago the A320 was still considered to be playing second fiddle to the B737 but the operator base numbers more than 300 which ensures that aircraft are constantly moving between operators and as such lease rentals between the two models is less notable than in the past.|
|A320neo||2015-19||320-420||The average rental quoted by seven appraisers for a new A320neo is approximately $360,000 per month but there may be some deals which are much lower than this rate. However, once again it is important to ensure that the headline rate is accompanied by an understanding of the return conditions which will add significantly to the indicated rate. The End of Lease compensation agreement for the more financially secure operators or maintenance reserves will reflect a full life aircraft and therefore the real lease rental is that much higher than the headline amount. This will therefore see comparative rentals of more than $380-400,000 per month. The differential in rentals between the ceo and neo are perhaps not what was desired but $25-35,000 is still possible although the lower end is more likely in a low interest environment. Many operators are now opting for 180+ seats and the SpaceFlex warrants a $5,000 a month premium.|
|A321-100L||1994-971998-02||45-7560-110||The rates for the A321-100 are negligible with very few operators of the type with even fewer willing to take on the aircraft now and in the coming years. The aircraft is now 15-25 years of age and was only ever delivered in limited numbers. The very size of the A321 initially made it desirable only to the flag carriers who had the density of traffic able to cope with the type. The A321 may have the appearance of the popular variant but it fails to comport itself as such. The parting out of the aircraft may be viewed as the more preferable option once the lease comes to an end.|
|A321-200H||1999-042004-102011-19||100-175150-285260-410||A great aircraft although it is important to ensure that those with high and low weights are correctly differentiated. The average of appraisers sees the lease rental for a new aircraft as being just under $400,000 per month with a low of $350,000 and a high of a $425,000 per month. Again, the definitions used by appraisers may account for the difference. The age profile of the A321-200 is now such that used aircraft are entering the market but lessors have little difficulty in placing the aircraft. The capacity of the aircraft is such that ever more operators are upgrading to the A321 thereby adding capacity without having to add additional aircraft. Even low cost operators have increasingly moved up to the A321 and Ryanair has already ordered the B737MAX200, the first of which has left the assembly plant. There are now over 110 operators of the A321 with over 1,500 in service. The seating capacity of the -200 is perhaps unlikely to exceed 220 for most operators. More seats means lower seat mile costs and lower seat mile costs means lower fares sufficient to stimulate more traffic.|
|A321neo||2016-19||400-480||The number of orders for the A321neo and the proportion of deliveries compared to the A320neo underlines just how popular the A321 has become. Boeing will have an uphill struggle in marketing the B737-10 as well as the B797. The rentals for a new A321neo is averaging around $430,000 per month which represents a $30-35,000 premium over the A321ceo thus providing sufficient coverage of the extra investment for the lessor. Even so, the lease rentals of new A321neos again may seem to be low particularly when 12 year lease terms are being quoted along with a good credit and full life return conditions. A rental of say $375,000 for a new A321neo may see full life and a 10-12 year term. The real lease rental on a like for like (ten years to an average credit with half life return conditions) basis will therefore be well in excess of $425,000 per month. The ACF – Airbus Cabin Flex – has entered service offering greater capacity. The new door configuration may allow 240+ seats to be accommodated but there have been relatively few orders. The LR warrants a premium but not as much as Airbus would like to charge not least because operators simply will not be able to generate the necessary revenues due to potentially fewer cycles.|
|B717-200||1999-04||70-110||The B717 is an aircraft that is hidden from view for many operating with only a few lessees. The performance of the aircraft is attractive only to a few and once these existing stalwarts divest themselves of the type then there will be little interest. The engines have little value. Of the 155 in service with five operators, Delta has the majority with 91 units. The wider market has little enthusiasm for the type which is a pity as Boeing should have perhaps done the same as Airbus with regard to the CSeries (A220) and more fully embraced and developed it. Boeing would then have a viable product at the lower end of the seating capacity.|
|B737-600||1998-03||55-110||The -600 is far from the most desirable of assets for the lessor but as long as the rental is reasonable, and the lease term can continue to be extended, then the returns may be higher than might be expected. The 69 delivered was a disappointment and any lessor of the type will be hoping for a lease extension as finding a new lessee will not be easy. Lessors may be better off parting the aircraft while the demand for the engines remains strong. The -600 is increasingly exposed to the new types such as the A220 and the E195E2. As both the -600 and A318 are not part of the respective MAX and neo families, this provides a clue to how much the market has transitioned to newer and larger types.|
|B737-700||1997-012002-092010-18||70-10090-170160-270||There are now no -700s on backlog and few B737-7s have been delivered. Like the A319, the market for this size of aircraft is no longer favored and lease rentals for the younger examples in particular are under pressure. Lessees will likely be unwilling to pay a premium for a younger aircraft that does exactly the same job as an older example. There are a number of lessors of the type but most will be seeking to extend existing leases rather than looking for a new lessee. The fleet of Southwest represents half the 1,100 in service although the operator base still numbers some 95 for the other 500 aircraft. The operator has already introduced a large number of B737-800s and the larger types will be viewed with ever greater enthusiasm going forward. This means that the -700s may be replaced in the coming years rather than being added to.|
|B737-800||1998-022003-082008-19||90-140130-240195-370||The average rental for a new -800 as indicated by seven appraisers is $340,000 per month with a low of $310,000 and a high in excess of $360,000 per month. The older -800s are still being placed but rentals of more than $100,000 will be difficult to achieve in the near term. With so few remaining to be delivered, there will likely to be lesser appetite for paying a premium. Even as the -800 is in the process of being replaced the appetite for the aircraft is very much in evidence and will likely remain so as long as the price of fuel remains manageable. The B737-800 remains the narrowbody of choice particularly if accompanied by maintenance reserves or End of Lease compensation. The lease rentals are inevitably taking note of the arrival of the -8MAX and as such there is no expectation of an improvement. Lessees need to be aware of the announcement by CFM concerning the cost of overhauls and LLPs going forward.|
|B737-8||2017-19||355-480||Although Boeing has had a few delivery issues these are relatively minor in nature. The lease rentals for the aircraft are indicated to be some $20,000 higher than for the A320neo which is something of a surprise in view of the considered similarity. The market for the type will remain strong and is expected that the aircraft will remain the lessors aircraft of choice for many more years – as will the A320neo. CFM must be relieved that P&W is likely to push back the envisaged PIP until the next decade with the CFM PIP is still scheduled for around 2022 at the latest.|
|B737-900||2000-04||70-105||The aircraft is facing continued weakness and lease rentals are considered to have fallen again as the market has consistently turned its back on the type. There are a few operators who find the type suited to their route network but there will likely be little appetite for adding capacity. Lessors will be anxious to extend leases rather than run the risk of remarketing to the wider market. The lessors will be seeking a full payment on the initial lease through lease extensions. While Airbus has launched some aircraft variants that have failed to gain traction, Boeing has also had its fair share with the -900 being a prime example. A significant number of -900s are now fitted with winglets which does something to improve remarketing opportunities.|
|B737-900ER||2006-112012-19||120-200190-380||A few -900ERs remain to be delivered and lease rentals continue to decline. The lease rentals for the -900ER are fortunate to be above those for the -800 despite the difference in size. Achieving a rental at the upper end of the indicated range for a new aircraft is likely to be a difficult task. There are a dismal 21 operators of the type operating only 450 aircraft. Lion Air is a major operator as is Alaska and Delta. These three operators have over 50 percent of the fleet. The market for the aircraft is facing the prospect of further problems now that the B737-10 is under development and the B737-9 is available.|
|B757-200||1982-881989-951996-02||50-8065-9075-115||The rates for the B757 are virtually unchanged as the aircraft is still in demand by a number of operators despite advancing age and maintenance burden. The rates can be variable depending on the financial standing of the lessee and the term of the lease. Lease Rental Convergence is all too common for elderly aircraft and the B757 is old.|
|B757-200ER||1987-951996-02||60-8580-125||The -200ER no longer has the narrowbody transatlantic market monopoly and the A321 will be increasingly used for second city pair and charter operators. The cost of an engine overhaul is still a concern for operators at some $4 million. The cost of the LLPs is also not cheap although lower utilization will play a role in extending the occurrence of such costs. The low cost carriers are now offering long haul services and this may serve to limit the opportunities even further for those -200ERs flying across the Atlantic on what seemed to be traffic limited routes.|
|B757-300||1998-03||80-140||The rentals can be much higher and there is an attempt to talk up values. For a few operators – or perhaps a single operator – the type still has some attraction for which they are willing to pay a premium. A stretch too far for most operators but there can be some variation in rates depending on the needs of the lessor and lessee. A wider aisle is needed should a single aisle be present on the new MoM aircraft being contemplated by Boeing at long last. The B737-10 offers only a temporary solution. There was always a concern regarding the ability to embark and disembark the aircraft quickly particularly in a high utilization environment but operators seem to have resolved this. All -300s are fitted with winglets which at least provides better efficiency but not sufficiently as to allow lease rentals any measure of improvement.|
|Commentary reflects change from the last update to Narrowbody Rentals of November 2018.|